Claremont Preparatory School, a six-year-old institution in Lower Manhattan that has had difficulty fulfilling its ambitions, is being sold to a private-equity-backed firm, in a sign of growing investor interest in private schools in New York City.
The sale to the firm, Meritas, which is owned by Sterling Partners, illustrates the growing force of profit-seeking companies in private education, a development loaded with potential and risks. Private equity firms are as well known for their top-notch management teams as for their cost-cutting mandates, which have been widely tested in the world of business but are relatively new to the field of elementary and secondary education.
Michael Koffler, an entrepreneur born in Flushing, Queens, opened Claremont at 41 Broad Street in 2005 with 54 students in kindergarten through fifth grade. It was meant to capitalize on the outsize growth of families downtown, and was one of several for-profit schools to open in recent years in New York.
Claremont had something few Manhattan schools have: expansive and modern facilities. Last fall, Mr. Koffler opened Claremont’s upper school on Broadway, a $35 million project, parts of which look more like the Museum of Modern Art than a high school.
But aggressive projections were stymied by the financial crisis and a lack of stability parents saw in the school. Its goal was to have 1,000 students by 2007, but today it has a total of just 522 using its 325,000 square feet of pristine facilities. Leadership has been inconsistent, with four heads in six years.
Last year, Mr. Koffler concerned some parents by firing the headmaster shortly after the parents had signed contracts committing to another year, leaving them little choice but to keep their children in the school. Attrition was 20 percent in 2010.
Mr. Koffler, who did not disclose the price paid for the school, said he was selling because he wanted Claremont to be part of an international family of schools. “I have mixed emotions, but the real issue is what’s the right thing to do for the long-term future of the youngsters and their families,” he said.
He declined to say whether he had made or lost money on Claremont. His company, Metschools, still owns several preschools and special education schools in the city.
And what will private equity bring to schools?
Private equity firms manage money for large investors like endowments and pension funds, and seek profits by buying companies they believe are undervalued, putting in new management, cutting costs and trying to increase revenue before reselling them or offering them to the public in a stock sale.
Other private equity firms have jumped into the private school market, where demand for seats runs far ahead of supply, particularly in Manhattan. But the high cost of real estate has made it hard for anyone but deep-pocketed investors to open new schools.
According to one study, the number of school-age children in Manhattan, from Battery Park City to 72nd Street, whose families earned over $500,000 a year soared to 15,700 in 2010 from 4,300 a decade earlier. But private schools have added only 400 seats in the same period, said Chris Whittle, the chief executive of Avenues: The World School, a $75 million, private-equity-backed school that will open in September 2012 in Chelsea.
“The result is an alarming shortage of seats in good schools,” Mr. Whittle said at an information session for parents last week.
I'm sure the city will start looking to put some of these schools into city buildings eventually.
Unlike charter schools that cater to working class students, the parents of these kids aren't going to sit for sharing space with traditional public schools.
How much do you want to make a bet that the NYCDOE eventually argues that these schools are great alternatives to public schools, can help with the space crisis and hands a building or two to them?